Stock Market Needs To Go Long, Real Long

Call a stock trader, ask them why the markets are up on any particular day and you’re liable to hear that old saw: “short-covering,” stock buying from traders giving up on and reversing their negative bets on stocks. It’s a reliable enough explanation, particularly on days (not today) where there isn’t a big obvious reason for a stock rally. We’ve had a lot of those days in the past month, as the stock market has slowly melted up 6.4% over the past month.

Well, we may be running out of that “short-covering” rocket fuel, according to Chris Verrone, technical analyst at Strategas Research Partners. As Mr. Verrone points out, the number of outstanding shorts on the NYSE is at its lowest point in a year, which — together with a 14-for-18 run of daily gains on the S&P 500 — could mean “the short covering phase of this rally is likely exhausted.”

In other words, if stocks want to move any higher from here, it’s going to have to do it by getting people excited again — enough to go long on stocks, not just less short on stocks. With a full slate of earnings in the next few days, a welter of company earnings and more fodder from Europe, there shouldn’t be any lack of opportunities. Ball’s in your court now, bulls.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.